KARACHI: Three top assemblers (by sales and production) cumulatively held Rs67.2 billion ($650.7 million) in cash, bank balance and short-term investments by Sept 30, 2016, the State Bank of Pakistan (SBP) said on Saturday.

The SBP was responding to criticism by the Pakistan Automotive Manufac­turers Association over imposition of 100 per cent cash margin on imports.

The central bank maintained that given this cash cushion, the industry should not face any undue financial burden in putting up 100pc cash margin at the time of opening letters of credit (LCs).

The SBP believes that local car industry’s cash flow has benefitted tremendously from the longstanding practice of charging advance payments from customers. “Assemblers collect up to 100 per cent advance payment from customers, months ahead of actual delivery of vehicles. This is even true for corporate clients (including state institutions like SBP),” the central bank said.

Sources said local car assemblers park the cash received from customers in bank accounts and other short-term government securities for at least three to four months, besides financing future imports of raw materials and procurement from local vendors.

Pak Suzuki Motor Company Limited charges Rs200,000 on advance booking followed by Rs1 million by Honda Atlas Cars while the Indus Motor Company (IMC) books vehicles with Rs500,000 to Rs1m depending on engine power.

Going through the balance sheets of assemblers, advances from customers and dealers of IMC stood at Rs17.5bn for the half year ending Dec 31, 2016 (unaudited). The amount ending June 2016 was Rs19.1bn (audited).

For the period ending Sept 30, 2016 (unaudited), Pak Suzuki had the amount of Rs1.267bn while during the period ending Dec 31, 2015 (audited) stood at Rs4.22bn.

Advance of Honda Atlas for the period ending Dec 31, 2016 stood at Rs6.64bn.

Sources said the balance sheet shows net cash position of IMC at Rs23bn as on Dec 31, 2016, while net cash position of Honda Atlas Cars on Sept 2016 was Rs16bn. Pak Suzuki had net cash of Rs11.4bn for the period ending Sept 30, 2016.

A healthy net cash position may allow assemblers to enhance capacities depending on the market demand and supply situation, the sources added.

The recent demand is also attributed to bank financing at attractive rates against their auto loan policies.

IMC claims to have started auto policy’s benefits specially meant for its convenience. However, the government is yet to legislate crucial parts of the policy.

Under the ‘Consumer Welfare’ section of The Auto Policy 2016-21, a few features specifically relate to the purchase experience of the customer.

The policy stipulates that automakers do not accept more than 50 per cent prior payment for booking the vehicle.

Furthermore, if the delivery exceeds two months from the communicated delivery date, interest payments amounting to Kibor +2pc are to be made to the customers on the amount paid for the bookings.

This was done mainly to encourage early delivery of vehicles and also to ensure customers get some form of compensation to offset the opportunity cost of booking as opposed to immediate delivery. As per the policy, the law was to be formalised through an SRO that would enforce it as a binding on the auto industry to follow this norm.

Interestingly, to date no SRO has come from the government that mandates this consumer welfare practice.

Notwithstanding the lack of legal formality, IMC, the assembler and distributor of Toyota vehicles has voluntarily commenced making late delivery payments to customers. The company is presently facing robust demand for its vehicles such as the newly introduced Toyota Fortuner SUV and the Hilux Revo Pickup and its flagship product Toyota Corolla that continues to outperform the market.

IMC Chief Executive Officer Ali Asghar Jamali said in view of extraordinary demand, certain Corolla variants have delivery period in excess of 60 days. The company is compensating all such customers with late delivery penalty payments. However, he clarified that not all Corolla variants have long delivery times; certain models are available within the 60 days’ timeframe.

In 2013, IMC was the first company to introduce the facility of booking vehicles on partial payment, whereby a Toyota vehicle could be booked from as low as Rs 500,000.

However, dealers said the practice of compensating customers with late delivery charges is being followed by Honda Atlas and Pak Suzuki.

Published in Dawn, March 12th, 2017